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Splitting Assests after Divorce
Tax Changes to Provide Opportunities
Share Market Outlook - Dec 1998
The Share Market - Where Now? (Aug 98)
Negative Gearing:Shares Versus Property
New Approach to Negative Gearing
Putting Money into your Spouse's Super
The move is seen in some circles as a step forward for women who stay at home and look after the kids. The husband can work and contribute to the wife's superannuation account giving her a greater degree of financial security. Apart from the pluses for women, the spouse rebate also represents a fundamental change to superannuation which in the past has been reserved solely for people in the paid workforce.
The legislation allows for a working spouse to contribute up to $3000 a year to the non-working or low income spouse's superannuation and claim a tax rebate of 18 per cent. Low income is defined as earning less than $10,800 a year. If the full $3000 is contributed the rebate is worth $540 a year to the working spouse. This is reasonable but not particularly exciting.
The real planning opportunities come if the contributions are more than $3000. Superannuation carries many tax benefits, particularly when the money is withdrawn from super in the form of a retirement income stream such as an annuity or allocated pension.
Detailed regulations to be tabled in Parliament as part of the changes are expected to confirm that there will be no limits to spouse contributions (although only the first $3000 will attract the rebate). If so, there are big opportunities for high income earners to income split and gain significant tax breaks. It will be particularly appealing to those who are approaching reasonable benefit limits and to those who are about to retire. Even those who are already retired will be able to benefit if they are under the age of 65.
They will be able to cash in other investments and place them into super. This year reasonable benefit limits (the most you can accumulate in super without attracting penalty rates of tax) are $454,718 if all the super money is taken out as a lump sum and $909,435 if at least half is invested in a complying income stream such as an annuity.
The spouse rebate legislation means that these limits can effectively be doubled. If you have the resources, a couple can retire with almost $2 million in super. Even greater benefits come on retirement. Tax breaks on income streams mean that the first $70,000 or so in income each year from these investments will be tax free.
The Government offers a number of tax benefits to encourage people to take out retirement income streams such as annuities and allocated pensions. The retiree places a lump sum in these pension accounts and in return receives a regular payment. Once a person has retired, earnings on the money within the pension account are tax free - tax is only payable when the money is paid out. Part of the money paid each year to the retiree is regarded as a return of capital and is not taxed. The remaining part attracts a 15 per cent tax rebate.
In addition, when the Government's savings rebate comes into effect, there will be further tax savings on these payments. Individual circumstances vary and so will the tax savings. But if you are in a position to use the spouse rebate it is something worth looking at. The rebate is effective this financial year.
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